Costco Case Paper

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Costco Case Paper

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UMUC

Introduction

Costco Wholesale Corporation was founded by James Sinegal and Jeffrey Brotman in September of 1983 (Thompson, 2008 p. c-32). Costco is one of the largest retail stores in the wholesale industry. Costco mission is to offer their customers low prices on both private and limited selection of nationally branded products in a wide range of merchandise categories. Businesses and families rely on Costco to offer them high quality products and services at everyday low prices. As stated in the 2006 Annual Report: “rapid inventory turnover, high sales volume per warehouse, leveraging an efficient operating structure, reduced handling of merchandise, and making themselves the low cost operator in retail are key elements that make Costco successful (2006)”. (Thompson, 2008 p.c-32). Key Elements of the Company’s Business Model As stated by Thompson in the case study: “Costco leaders or managers believed that rapid inventory turnover and volume purchasing achieved by efficient operation, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse facilities, enabled the company to operate profitably at significantly lower gross margins than traditional wholesalers and supercenters”. (Thompson, 2008 p. c-32). The rapid inventory turnover, volume purchasing, efficient distribution, and self-service of warehouse facilities which are the key elements of Costco business model allow it to take advantage of the early payment discounts. Costco finances a big percentage of its merchandise inventory through the payment terms provided by vendors rather than having to maintain sizable working capital to facilitate timely payment of suppliers. Costco business model has made it very successful among its competitors. For example, as stated in the case study: “the incredible volume that Costco generated included

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